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Saturday, November 23rd 2019

Long Puts Backtest Using The Optimizer

Long puts are backtested with many different combinations using the Optimizer method.


Long put options can be an effective way to protect a portfolio, but choosing which puts to buy can be challenging. Using an optimizing backtest process, the author tested many combinations of long put strategies and found that the 500 day, 20 delta put was the most effective for their investment objectives. Further testing with a spread yield constraint confirmed these results. To learn more about this strategy, readers can sign up for a free trial at the provided link.

If you are looking to protect your portfolio, consider put options.

The positives about puts are that they are negatively correlated -- meaning they go up when the value of the portfolio goes down, and easy to understand, but the negatives are that puts are expensive.

There are many choices when considering which puts to buy to protect your portfolio. How many days to expiration should the puts be? How far out of the money? When should you exit a put?

Using our optimizing backtest process, we tested many combinations of long put strategies as shown in the table below:

For example, we tested the 90, 180, 365, and 500 Days to Expiration and 0.20, 0.10, 0.075, 0.05 Delta and exiting when the profit from the put is > 250%, 300% and 350% in all combinations.

The strategy that had the returns and best year profit objectives that meet our investment objectives the best (your objectives will vary).was the 500 day, 20 delta put.

Testing more to verify our results, we staggered the put buying and added a spread yield constraint. We got the following results:

If you are interested in learning more about this strategy, respond to request a link then sign up for a free 14-day trial and then $99 per month: Free Trial

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